US PERM Suspension Unlikely to Hit Indian IT Firms: Kotak
Kotak Institutional Equities says US suspension of PERM applications for major Indian IT firms like TCS and Infosys is unlikely to impact earnings.
The recent decision by the US Department of Labor (DoL) to suspend new and pending labor certification (PERM) applications involving six major Indian IT companies is expected to have a minimal impact on their overall operations and earnings, according to a report by Kotak Institutional Equities.
Major IT Players Affected
The suspension specifically targets applications involving industry giants including TCS, Infosys, HCLTech, Wipro, Cognizant, and Capgemini. While the US Department of Labor has halted the acceptance of new PERM applications and the processing of existing ones, it has yet to provide clarity on the duration of this suspension or how it will affect applications that have already successfully completed the PERM process.
Reduced Reliance on H-1B Visas
According to the Kotak report, Indian IT companies have proactively mitigated risks by significantly increasing local hiring within the United States over the last several years. Key findings from the analysis include:
- Declining Dependency: Employees dependent on work visas now account for a relatively small and shrinking portion of the US-based workforce for these IT firms.
- Small Volume of Pending Cases: The number of employees currently with pending PERM applications is even smaller, minimizing the immediate fallout.
- Strategic Shift: Companies are expected to further reduce their reliance on H-1B visa holders by prioritizing local recruitment and offshoring more work to India and other global locations.
Potential Risks and Cost Offsets
While the direct impact on earnings is expected to be negligible, the report highlights some secondary effects:
Subcontracting Costs: To meet immediate project requirements, companies may turn more frequently to subcontractors, which could lead to a rise in costs in the short term. However, the shift toward greater offshoring is expected to offset these expenses over time.
Visa Extensions: The suspension could complicate the process for employees seeking to extend their H-1B visas beyond the standard six-year limit, as qualifying PERM or I-140 filings are often necessary for such extensions. However, those with already approved I-140 petitions are expected to face limited direct impact, as the current measure does not revoke existing H-1B approvals.
The Threshold for Material Risk
The report concludes that the risk to Indian IT firms would only become "material" if US immigration restrictions were expanded to include existing work authorizations, the deployment of employees at client locations, or outsourcing arrangements. "The present measure does not reach that threshold," the report noted.